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Emphasise on business strategy report

Introduction

The intent of the report is to emphasise on business strategy a company formulates considering the various aspects that influences their business strategy. Strategy is the plan or method opted in order to bring the desired outcome such as accomplishment of a goal or addressing issues. Formulating a strategy plays an essential role in outlining the measures that the company requires taking in order to capture a strong position in the market. The organisation chosen for the report is Tesco. Initially, the report will explicate the strategic context and portray the application of different analytical chassis such as stakeholder analysis using stakeholder mapping and stakeholder matrix, PESTLE framework, Porter’s Five Forces model, Ansoff’s Growth Matrix. to analyse the external environment of the business. Proceeding further, the report will apply different analytical tools in order to analyse the internal environment of the business such as the company’s strategic capabilities. Along with this, the report will portray the use of balanced scorecard for aligning the company’s vision and strategy, competitive analysis applying the Porter’s Five Forces model and the application of Ansoff’s Matrix to the product/market strategy. Lastly, the report will explicate the strategic directions and choices, which are available to the company.

Analyse the impact that the macro environment has on an organisation and its business strategies

The strategic context

Vision and Mission of Tesco:

Tesco’s vision comprises of five components, which are as follows.

  • Needed and wanted all across the world
  • A developing business with ample amount of opportunities
  • Innovative, modern, and full of notions (Performancemagazine.org, 2013)
  • Winners domestically while applying the skills globally
  • Inspiring, earning loyalty and trust from the consumers, their colleagues, and communities

The company’s core purpose is to serve the shoppers a slightly better on a daily basis (Tesco plc, 2019).

Analytical frameworks of the macro environment

Stakeholder Analysis:

Stakeholder Mapping: It is a collaborative process for researching, debating, and discussing, which draws numerous perspectives for effective determination of the key stakeholders list throughout the spectrum of stakeholders. The company utilises the framework to determine the most influential stakeholders.

Mendelow Matrix on Tesco

Figure 1: Mendelow’s Matrix on Tesco

(Source: created by the author)

PESTLE Framework:

Political

Government policy

Tax

Political stability

Industrial Regulations

International trade agreements

The decision of the UK to leave the EU weakened the value of pound leading to uncertainties in future trade constraints and the profit margins might decline (Cipd.co.uk, 2018).

Consumer protection rights

Government tax charges on the products.

Medium

Low

High

Economic

Exchange rates

Inflation rate

Business freedom

Financial freedom

The conversion of exchange rates remains uncertain influencing the negotiations with suppliers.

The inflation rate is 2.7% that clearly portrays the economic growth (Heritage.org, 2019).

The business freedom in UK is 92.9%, which provides a great platform to operate business.

The financial freedom is 80% with an FDI inflow of $15.1 billion.

High

High

Medium

Medium

Social

Consumer preferences

Consumer spending habits

Lifestyle determinants

The preferences and tastes of the UK consumer keeps on changing overtime and currently they are being highly conscious regarding their health.

The changes in spending habits of the customers tend to create significant pressure on certain commodities (Cipd.co.uk, 2018).

The consumers of UK prefer availing superior quality products and services to raise their living standard.

High

Medium

Medium

Technological

Innovation and automation

Disruptive technologies

AI

Security

The innovation and automation has led the companies to sell their goods and services online (Cipd.co.uk, 2018)

The aspect of disruptive technologies could lead to considerable amount of changes in the future days.

The nation requires enhancing their technology for intelligence and analytics.

The risks of cybercrime pose threat to data loss and privacy breach as well and might lead to operational instability.

High

High

High

High

Legal

Tax burden

Labour freedom

Investment freedom

Government spending

The tax rate for corporate is 20% whereas the overall burden of tax equivalents 33.2% of the overall domestic income. In 2019, the tax burden is 64.7% (Heritage.org, 2019).

The labour freedom is 73.5% allowing the companies to recruit vast amount of skilled and unskilled labours.

Besides this, the investment freedom is 90.0%, which is quite high as well (Heritage.org, 2019).

The government spending as of 2019 is 48.2%, which is higher than that of 2018.

High

Medium

High

Medium

Environmental

Environmental constraints enforced by the government

Implementation of CSR practices and ethical sourcing

There is a rise in environmentally and ethically conscious shoppers.

Ethical sourcing has driven the prices of commodities (Cipd.co.uk, 2018).

Implementation of CSR practices and ethical sourcing is necessary to enhance consumer relationship.

Medium

Medium

Table 1: PESTLE Framework

(Source: created by the author)

Assess an organisation’s internal environment and capabilities

Organisational internal environment

Strategic capability and components:

It refers to the ability of the business to harness each of their competencies and resources with the intent of acquiring a strong competitive advantage within the marketplace and sustain its position for increasing their value from time to time. The components of strategic capability comprises of the company’s ability of competing, thriving within the open market, identification of the crucial competencies, and strategic value analysis.

McKinsey 7S Model:

The tool is used in order to analyse the company’s design through accentuating the seven core internal components such as strategy, systems, structure, style, shared value, skills, and staff for identifying the alignment of these components in making it viable for the company to achieve the business goals (Hanafizadeh and Ravasan, 2011). The 7S factors are classified into two categories namely the Hard S and Soft S.

Soft S

Hard S

Style

Share Values

Staffs

Skills

Strategy

Structure

Systems

Table 2: Soft S and Hard S in McKinsey 7S Model

Source: (created by the author)

Hard S:

Strategy: It is the plan formulated by the company in order to sustain their competitive advantage as well as successfully compete within the marketplace.

Structure: It represents the manner in which the business units of Tesco are organised alongside comprises of the information on the accountabilities of the different units.

Systems: These are the procedures and processes of the organisation that discloses the daily business operations along with the decisions made. Systems are the ones, which determine the manner in which the business is carried out and the managers require focusing on the business operations during the changes (Hanafizadeh and Ravasan, 2011).

Soft S:

Style: It represents the manner in which the executives and top-level managers manage the company, and the way in which they respond and interact. Besides this, it also entails the actions that are taken and the symbolic value.

Shared Values: It is the core of the model. Shared values are the standards and norms, which directs the employee behaviour alongside the company’s actions (Jurevicius, 2013).

Staffs: This component is concerned with the number of employees Tesco requires and of what type. It also accentuates on the manner in which Tesco will recruit the employees, train them, motivate them, and reward them.

Skills: These are the competencies and abilities, which the employees of an organisation possess to perform the tasks effectively (Ansoff et al., 2018).

VRIO Framework of Tesco:

Resources

Value

Rare

Imitation

Organisation

Competitive Advantage

Local and global existence

Yes, it diversifies the streams of revenue alongside isolates the organisation’s balance sheets from the economic cycles.

Yes

Imitable by the rival companies

Yes, Tesco is one of the diversified organisations in the retail sector.

Caters firm competitive advantage

Pricing Strategies

Yes

No

Yes, as it is imitated on the regular basis by the rivals operating in the retail industry.

Yes, Tesco comprises of a engine for pricing analytics.

Temporary

Flexibility in the supply chain

Yes

Yes

Some of the rival companies also have flexibility in their supply chain and deals with similar suppliers.

Used completely

Stable, as it keeps the business in flow.

Financial Resources

Yes

No

Market liquidity and financial resources are available to the competitors as well.

Tesco has a sustainable position when it comes to financial resources.

Temporary

Intellectual property, trademarks, and copyrights

Yes, because they are exceedingly valuable for thwarting the competition.

Yes, the IPR are highly rare and the rival companies cannot copy them.

Imitation threat is significantly low however, provided the margins in the sector the chances of disruption are quite high.

The company utilises the full extent of their IP rights.

Caters a strong and effective competitive advantage

Table 3: VRIO Framework of Tesco

(Source: created by the author)

Value Chain Analysis of Tesco:

With the value chain analysis, the company figures out their primary activities and secondary activities, which add value to the company’s final commodity and then evaluate the activities in mitigating the costs or else increase the differentiation.

Inbound Logistics: It is about receiving as well as warehousing of the raw materials, along with their dispersion to the manufacturing as per the requirement. Tesco has upgraded their ordering system as well as authenticated the list of vendors (Tescoplc, 2019).

Operations: It is the process of converting the raw materials into finished commodities and services (Rothaermel, 2013). Tesco comprises of a flexible supply chain, which assists them in manufacturing the goods effectively. Along with this, the company has been capable of curtailing the costs via incorporation of efficient IT systems.

Outbound Logistics: It is the ware housing as well as distribution of the manufactured commodities. The outbound logistics of Tesco is highly effective and the over the years, Tesco has been capable of forming positive relationship in the offline and online retail segments. Besides this, Tesco has established various formats of stores to receive the optimum client exposure (Tescoplc, 2019).

Marketing & Sales: It focuses on effective identification of the consumer requirements as well as generates the sales (Morden, 2016). In order to increase their volume of sales, Tesco formulates an effective marketing strategy such as Tesco Club card. It is presented via the IT advancements to draw the attention of more clients from their competitors.

Services: It refers to the assistance, which the company provides to their clients after selling the products. Tesco operates the business functions accentuating on a dual strategy to be the product differentiator as well as a cost leader. The company attempts to capture completely new consumer segments in by catering superior after sales services. Apart from being a cost leader, the company also comes up with wide range of diversifies commodities for their existing clientele to create more value in comparison to the rival companies.

Evaluate and apply the outcomes of an analysis using Porter’s Five Forces model to a given market sector

Analytical models and tools of analysis

Porter’s Five Forces:

Threat of new contestants (LOW):

To enter the retail sector, an organisation requires investing significant amount of capital for emerging as a competitive force and in creating a string brand image. Thus, the threat of new contestants in the retail sector of the UK is reasonably quite low (Dobbs, 2014). Besides this, Tesco has already captured majority of the market value and share in the retail sector. Along with this, the companies such as Tesco, Sainsbury’s, Morrisons, and Asda have an established brand image, which further reduces the threat of new entrants even more.

Threat of substitute (LOW to MEDIUM):

The risk of substitution in the retail sector ranges from low to medium. It is because for the food products, the substitution threat is low and for the non-food products, it is medium. For supermarkets such as Tesco, such a threat does not matter at all. However, in order to address such an issue, Tesco is preparing to open up new outlets in the remote areas for offering the consumers with a convenient transportation system. Besides this, the company also imposes premium prices for the non-food products and in cases of recession, the consumers might switch to the rival companies offering lower prices.

Intensity of competition in the existing market (HIGH):

The intensity of competition within the existing organisations in the retail sector of the UK is exceedingly high because there are numerous organisations with strong policies as well as power of investing significant amount of capital. Some of the major competitors of Tesco in the UK retail sector are Sainsbury’s, Morrisons, and Asda. All these companies are always looking forward to switch the consumers from one another intermittently over the aspects of promotions, price, and products. Apart from this, companies such as Sainsbury’s, Morrisons, and Asda have acquired significant growth in their market share although the overall market growth of the retail industry is slow. This clearly specifies that the big players within the retail sector are capturing the consumers from one another and thus, resulting in making the competition more dangerous and severe for Tesco (Hitt et al., 2012). At the same time, organisations such as Lidl and Aldi are also offering low price commodities in order to capture the clients during the periods of economic recession, as these companies have gained a significant amount of growth by 25% during the period of economic recession in 2008.

Bargaining power of purchasers (HIGH):

Since the retail sector of UK is highly saturated with highly competitive companies such as Sainsbury’s, Morrisons, Asda, and Tesco, the consumers have several options in their hand that to with zero switching costs. It caters them with the ability to shift from one company to another quite easily. Thus, the bargaining position and power of the consumers or buyers is extremely high in this context (David, F.R. and David, 2013). In cases, if the consumers come across that the price of the commodities of an organisation is comparatively cheaper than that of Tesco, which also offers similar quality in the products the consumers will tend to switch brands. In the retail sector of UK, the consumers or buyers are willing to receive quality in the commodities and at a low price as well. Therefore, it is of extreme importance for company such as Tesco to accentuate on keeping reasonable prices and maintain superior quality.

Bargaining power of suppliers (LOW):

In the retail sector of the UK, the bargaining position and power of the suppliers is not that strong (Wheelen and Hunger, 2011). It is because the top-level companies in the supermarket such as Tesco, Morrisons, Asda, and Sainsbury’s maintain contract with their suppliers and these suppliers fear termination of the agreement when it comes to dealing with these organisations. Besides this, the suppliers consider catering proper supplies to these companies caters them with opportunities to grow their business.

Apply models, theories, and concepts to assist the understandings and interpretation of strategic directions available to the organisation

Strategic directions and choices

Hybrid Strategy (Combination of Cost Leadership and Differentiation Strategy):

Based on the analysis conducted, Tesco requires adopting the hybrid strategy. The application of hybrid strategy combines the strategy of cost leadership and the strategy of differentiation as well (Baroto et al., 2012). With the application of cost leadership strategy, Tesco will have two options. One of the options will be to offer commodities at a relatively cheaper price as opposed to the rival companies, which will induce the clients to pick up their products due to it being least expensive in the market (Hill et al., 2014). At the same time, Tesco can opt for the strategy of cost leadership in order to curtail the costs of manufacturing whilst charging the average price it does on their products. In this manner, the company would be able to increase their profit margins lying on each sale as opposed to the rival companies. It will make it viable for Tesco to win in the long-run. However, while employing the cost leadership strategy, it is imperative for Tesco to ensure that they can adhere to the plan for a long-term basis.

Moreover, the adoption of hybrid strategy also caters the company with the ability to implement the strategy of differentiation at the same time as well. In quite a few ways, this strategy is exact opposite of the strategy of cost leadership. With the implementation of differentiation strategy, Tesco will be more likely to attempt taking over the market from the standpoint of quality alongside functionality, instead of only trying to sell the items and services at the lowest price possible in the marketplace. While executing the strategy of differentiation, it is of utmost significance for the company in making sure that they induce the consumers within the marketplace that the quality, which is offered in their commodities, is worth the high prices (Tanwar, 2013). Nonetheless, it is never so easy to differentiate from the functionality standpoint as well as quality standpoint. It is of extreme importance for Tesco to make sure that they have great and excellent products in the store to offer the consumers. Besides this, it is crucial for the company to formulate and position a strong yet effective marketing plan in order to inform the consumers regarding their various products and services. It is because while facing dilemmas and issues, the consumers are most likely to approach the company and it is essential for the company to educate them with the features and specifications of the commodities and solve their queries and doubts in this process efficiently (Nandakumar et al., 2011).

Conclusion

On completion of the report, it can be derived that strategic management of the business is extremely crucial when it comes to successful accomplishment of the business goals and objectives. Besides this, from the external analysis it is important for Tesco to consider the various elements that pose threat to the business and exploit the existing opportunities in the external business environment. Along with this, Tesco has a proper alignment of their strategy, systems, structure, style, shared value, skills, and staff with the ultimate goal of the business. As per the VRIO framework, Tesco has a formidable competitive advantage in the UK retail sector. Besides this, the value chain of Tesco portrays, that the company goes on to sustain their leading position within the retail market, as the inputs of the company add value significantly. Lastly, the employment of hybrid strategy will make it viable for the company to differentiate their products as well as curtail the operational costs accordingly.

References

Ansoff, H.I., Kipley, D., Lewis, A.O., Helm-Stevens, R. and Ansoff, R., 2018. Implanting strategic management. Springer.

Baroto, M.B., Abdullah, M.M.B. and Wan, H.L., 2012. Hybrid strategy: a new strategy for competitive advantage. International Journal of Business and Management, 7(20), p.120.

Cipd.co.uk. (2018). [online] Available at: https://www.cipd.co.uk/Images/pestle-analysis-example-v2_tcm18-27108.pdf [Accessed 20 Jun. 2019].

David, F.R. and David, F.R., 2013. Strategic management: Concepts and cases: A competitive advantage approach. Pearson.

  1. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45.

Hanafizadeh, P. and Ravasan, A.Z., 2011. A McKinsey 7S model-based framework for ERP readiness assessment. International Journal of Enterprise Information Systems (IJEIS), 7(4), pp.23-63.

Heritage.org. (2019). United Kingdom Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption. [online] Available at: https://www.heritage.org/index/country/unitedkingdom [Accessed 20 Jun. 2019].

Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: Theory & cases: An integrated approach. Cengage Learning.

Hitt, M.A., Ireland, R.D. and Hoskisson, R.E., 2012. Strategic management cases: competitiveness and globalization. Cengage Learning.

Jurevicius, O., 2013. McKinsey 7S model. Strategic management insight.

Morden, T., 2016. Principles of strategic management. Routledge.

Nandakumar, M.K., Ghobadian, A. and O'Regan, N., 2011. Generic strategies and performance–evidence from manufacturing firms. International Journal of productivity and performance management, 60(3), pp.222-251.

Performancemagazine.org. (2013). From vision, mission and values to KPIs at Tesco. [online] Available at: https://www.performancemagazine.org/from-vision-mission-and-values-to-kpis-at-tesco/ [Accessed 20 Jun. 2019].

Rothaermel, F.T., 2013. Strategic management: concepts. New York, NY: McGraw-Hill Irwin.

Tanwar, R., 2013. Porter’s generic competitive strategies. Journal of business and management, 15(1), pp.11-17.

Tesco plc. (2019). Core Purpose and Values. [online] Available at: https://www.tescoplc.com/about-us/core-purpose-and-values/ [Accessed 20 Jun. 2019].

Tescoplc. (2019). [online] Available at: https://www.tescoplc.com/media/754356/tesco_ar_2019.pdf [Accessed 20 Jun. 2019].

Wheelen, T.L. and Hunger, J.D., 2011. Concepts in strategic management and business policy. Pearson Education India.

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